Asia FX under pressure, Aussie sinks as RBA holds rates

Investing.com -- Most Asian currencies moved in a tight range on Tuesday as anticipation of key U.S. data this week boosted the dollar, while the Australian dollar slumped as the Reserve Bank held interest rates steady. 

The greenback saw increased bids in Asian trade as overnight data showed that U.S. credit conditions were tightening. This came as recent indicators also showed that the world’s largest economy remained resilient despite high interest rates.

The dollar index and dollar index futures rose between 0.1% and 0.2%, after adding about 0.4% on Monday. 

This kept most Asian currencies under pressure, with focus now turning to key U.S. nonfarm payrolls data on Friday for more cues on monetary policy. While U.S. inflation has eased in recent months, a robust labor market could still keep the Federal Reserve’s outlook hawkish.

Australian dollar slides after RBA 

The Australian dollar was by far the worst performer in the region, falling as much as 0.9% after the Reserve Bank of Australia kept interest rates on hold.

The move disappointed some traders hoping for a 25 basis point hike by the RBA, given that inflation is still well above the bank’s target range, and the job market remains tight.

But the RBA still flagged the potential for more rate hikes in the coming months.

Waning sentiment over China also pressured the Australian dollar, as a private survey showed that Chinese manufacturing activity slowed in July. While the data spurred hopes for more stimulus measures in the country, Chinese officials have so far offered few concrete details on more economic support.

Weakness in China spilled over into most other Asian units. The Chinese yuan fell 0.2%, while the Taiwan dollar and South Korean won lost 0.4% each. 

The Indian rupee was flat amid pressure from strong oil prices, while the Singapore dollar lost 0.2%

Japanese yen under pressure as BOJ uncertainty weighs 

The Japanese yen fell 0.3% on Tuesday to a three-week low against the dollar, as investors second-guessed bets on policy tightening by the Bank of Japan this year.

While the central bank said it will allow more flexibility in its yield curve control (YCC) policy, it also carried out an unscheduled bond buying operation this week to stem a surge in government bond yields.

The yen was also hit by weaker-than-expected economic data, which showed on Tuesday that Japanese factory activity continued to shrink in July. Data on Monday had also shown weakness in Japanese industrial production.